Household Finance

Edited by Michael Haliassos, Professor and Chair of Macroeconomics and Finance, Goethe University Frankfurt am Main, Germany

• Contents: Introduction Michael HaliassosPART IHOUSEHOLD PORTFOLIOS: INTERNATIONAL COMPARISONS 1. Luigi Guiso, Michael Haliassos and Tullio Jappelli (2003), ‘Household Stockholding in Europe: Where Do We Stand and Where Do We Go?’, Economic Policy, 18 (36), April, 125–702. Dimitris Christelis, Dimitris Georgarakos and Michael Haliassos (2013), ‘Differences in Portfolios Across Countries: Economic Environment Versus Household Characteristics’, Review of Economics and Statistics, 95 (1), March, 220–363. European Central Bank (2013), ‘The Eurosystem Household Finance and Consumption Survey: Results from the First Wave’, Statistics Paper Series, 2, April, i, 1–111PART IIPORTFOLIO MODELS AND THE STOCK MARKET PARTICIPATION PUZZLE 4. Irwin Friend and Marshall E. Blume (1975), ‘The Demand for Risky Assets’, American Economic Review, 65 (5), December, 900–9225. N. Gregory Mankiw and Stephen P. Zeldes (1991), ‘The Consumption of Stockholders and Nonstockholders’, Journal of Financial Economics, 29 (1), March, 97–112, 6. Zvi Bodie, Robert C. Merton and William F. Samuelson (1992), ‘Labor Supply Flexibility and Portfolio Choice in a Life Cycle Model’, Journal of Economic Dynamics and Control, 16 (3–4), July–October, 427–497. Michael Haliassos and Carol C. Bertaut (1995), ‘Why Do So Few Hold Stocks?’, Economic Journal, 105 (432), September, 1110–298. Luigi Guiso, Tullio Jappelli and Daniele Terlizzese (1996), ‘Income Risk, Borrowing Constraints, and Portfolio Choice’, American Economic Review, 86 (1), March, 158–729. William R.M. Perraudin and Bent E. Sørensen (2000), ‘The Demand for Risky Assets: Sample Selection and Household Portfolios’, Journal of Econometrics, 97 (1), July, 117–4410. John Heaton and Deborah Lucas (2000), ‘Portfolio Choice and Asset Prices: The Importance of Entrepreneurial Risk’, Journal of Finance, LV (3), June, 1163–9811. Luis M. Viceira (2001), ‘Optimal Portfolio Choice for Long-Horizon Investors with Nontradable Labor Income’, Journal of Finance, LVI (2), April, 433–7012. Michael Haliassos and Alexander Michaelides (2003), ‘Portfolio Choice and Liquidity Constraints’, International Economic Review, 44 (1), February, 143–7713. Annette Vissing-Jorgensen (2003), ‘Perspectives on Behavioral Finance: Does “Irrationality” Disappear with Wealth? Evidence from Expectations and Actions’, NBER Macroeconomics Annual 2003, 18, 139–9414. Harvey S. Rosen and Stephen Wu (2004), ‘Portfolio Choice and Health Status’, Journal of Financial Economics, 72 (3), June, 457–8415. João F. Cocco, Francisco J. Gomes and Pascal J. Maenhout (2005), ‘Consumption and Portfolio Choice Over the Life Cycle’, Review of Financial Studies, 18 (2), Summer, 491–53316. Francisco Gomes and Alexander Michaelides (2005), ‘Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence’, Journal of Finance, LX (2), April, 869–90417. John Y. Campbell (2006), ‘Household Finance’, Journal of Finance, LXI (4), August, 1553–60418. Steven J. Davis, Felix Kubler and Paul Willen (2006), ‘Borrowing Costs and the Demand for Equity Over the Life Cycle’, Review of Economics and Statistics, 88 (2), May, 348–6219. Nicholas Barberis, Ming Huang and Richard H. Thaler (2006), ‘Individual Preferences, Monetary Gambles, and Stock Market Participation: A Case for Narrow Framing’, American Economic Review, 96 (4), September, 1069–90PART IIIPORTFOLIOS OF THE RICH 20. Karen E. Dynan, Jonathan Skinner and Stephen P. Zeldes (2004), ‘Do the Rich Save More?’, Journal of Political Economy, 112 (2), 397–44421. Nikolai Roussanov (2010), ‘Diversification and Its Discontents: Idiosyncratic and Entrepreneurial Risk in the Quest for Social Status’, Journal of Finance, LVX (5), October, 1755–8822. Jessica A. Wachter and Motohiro Yogo (2010), ‘Why Do Household Portfolio Shares Rise in Wealth?’, Review of Financial Studies, 23 (11), November, 3929–65PART IVASSET ALLOCATION AND ASSET LOCATION 23. Daniel Bergstresser and James Poterba (2004), ‘Asset Allocation and Asset Location: Household Evidence from the Survey of Consumer Finances’, Journal of Public Economics, 88 (9–10), August, 1893–91524. John Y. Campbell, Yeung Lewis Chan and Luis M. Viceira (2003), ‘A Multivariate Model of Strategic Asset Allocation’, Journal of Financial Economics, 67 (1), January, 41–8025. Robert M. Dammon, Chester S. Spatt and Harold H. Zhang (2004), ‘Optimal Asset Location and Allocation with Taxable and Tax-Deferred Investing’, Journal of Finance, LIX (3), June, 999–103726. Francisco Gomes, Alexander Michaelides and Valery Polkovnichenko (2009), ‘Optimal Savings with Taxable and Tax-Deferred Accounts’, Review of Economic Dynamics, 12 (4), October, 718–35Volume IIAn introduction to all three volumes by the editor appears in Volume I PART ISTOCK TRADING BEHAVIOR AND AGE EFFECTS 1. Brad M. Barber and Terrance Odean (2000), ‘Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors’, Journal of Finance, LV (2), April, 773–8062. Brad M. Barber and Terrance Odean (2001), ‘Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment’, Quarterly Journal of Economics, 116 (1), February, 261–923. Brigitte C. Madrian and Dennis F. Shea (2001), ‘The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior’, Quarterly Journal of Economics, LXVI (4), November, 1149–874. Mark Grinblatt and Matti Keloharju (2001), ‘What Makes Investors Trade?’, Journal of Finance, LVI (2), April, 589–6165. Christian Gollier and Richard J. Zeckhauser (2002), ‘Horizon Length and Portfolio Risk’, Journal of Risk and Uncertainty, 24 (3), May, 195–2126. Julie Agnew, Pierluigi Balduzzi and Annika Sundén (2003), ‘Portfolio Choice and Trading in a Large 401(k) Plan’, American Economic Review, 93 (1), March, 193–2157. Rob Alessie, Stefan Hochguertel and Arthur van Soest (2004), ‘Ownership of Stocks and Mutual Funds: A Panel Data Analysis’, Review of Economics and Statistics, 86 (3), August, 783–968. Markus K. Brunnermeier and Stefan Nagel (2008), ‘Do Wealth Fluctuations Generate Time-Varying Risk Aversion? Micro-Evidence on Individuals’ Asset Allocation’, American Economic Review, 98 (3), June, 713–369. Laurent E. Calvet, John Y. Campbell and Paolo Sodini (2009), ‘Fight or Flight? Portfolio Rebalancing by Individual Investors’, Quarterly Journal of Economics, 124 (1), February, 301–4810. Mark Grinblatt and Matti Keloharju (2009), ‘Sensation Seeking, Overconfidence, and Trading Activity’, Journal of Finance, LXIV (2), April, 549–7811. Yannis Bilias, Dimitris Georgarakos and Michael Haliassos (2010), ‘Portfolio Inertia and Stock Market Fluctuations’, Journal of Money, Credit and Banking, 42 (4), June, 715–4212. George M. Korniotis and Alok Kumar (2011), ‘Do Older Investors Make Better Investment Decisions?’, Review of Economics and Statistics, 93 (1), February, 244–6513. Mark Grinblatt, Matti Keloharju and Juhani T. Linnainmaa (2012), ‘IQ, Trading Behavior, and Performance’, Journal of Financial Economics, 104 (2), May, 339–6214. Andrew B. Abel, Janice C. Eberly and Stavros Panageas (2013), ‘Optimal Inattention to the Stock Market with Information Costs and Transactions Costs’, Econometrica, 81 (4), July, 1455–81PART IIRISK AVERSION 15. Robert B. Barsky, F. Thomas Juster, Miles S. Kimball and Matthew D. Shapiro (1997), ‘Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study’, Quarterly Journal of Economics, 112 (2), May, 537¬–7916. Luigi Guiso and Monica Paiella (2008), ‘Risk Aversion, Wealth, and Background Risk’, Journal of the European Economic Association, 6 (6), December, 1109–5017. Thomas Dohmen, Armin Falk, David Huffman and Uwe Sunde (2010), ‘Are Risk Aversion and Impatience Related to Cognitive Ability?’, American Economic Review, 100 (3), June, 1238–60PART IIIUNDER-DIVERSIFICATION 18. Morgan Kelly (1995), ‘All Their Eggs in One Basket: Portfolio Diversification of US Households’, Journal of Economic Behavior and Organization, 27 (1), June, 87–9619. Shlomo Benartzi and Richard H. Thaler (2001), ‘Naive Diversification Strategies in Defined Contribution Saving Plans’, American Economic Review, 91 (1), March, 79–9820. Valery Polkovnichenko (2005), ‘Household Portfolio Diversification: A Case for Rank-Dependent Preferences’, Review of Financial Studies, 18 (4), Winter, 1467–50221. Stijn van Nieuwerburgh and Laura Veldkamp (2010), ‘Information Acquisition and Under-Diversification’, Review of Economic Studies, 77 (2), April, 779–805PART IV FAMILIARITY, AWARENESS, FINANCIAL LITERACY, COGNITION 22. Joshua D. Coval and Tobias J. Moskowitz (1999), ‘Home Bias at Home: Local Equity Preference in Domestic Portfolios’, Journal of Finance, LIV (6), December, 2045–7323. Gur Huberman (2001), ‘Familiarity Breeds Investment’, Review of Financial Studies, 14 (3), Fall, 659–8024. Luigi Guiso and Tullio Jappelli (2005), ‘Awareness and Stock Market Participation’, Review of Finance, 9 (4), December, 537–6725. Annamaria Lusardi and Olivia S. Mitchell (2007), ‘Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth’, Journal of Monetary Economics, 54 (1), January, 205–2426. Laurent E. Calvet, John Y. Campbell and Paolo Sodini (2007), ‘Down or Out: Assessing the Welfare Costs of Household Investment Mistakes’, Journal of Political Economy, 115 (5), October, 707–4727. Laurent E. Calvet, John Y. Campbell and Paolo Sodini (2009), ‘Measuring the Financial Sophistication of Households’, American Economic Review: Papers and Proceedings, 99 (2), May, 393–828. Dimitris Christelis, Tullio Jappelli and Mario Padula (2010), ‘Cognitive Abilities and Portfolio Choice’, European Economic Review, 54 (1), January, 18–3829. James J. Choi, David Laibson and Brigitte C. Madrian (2011), ‘$100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans’, Review of Economics and Statistics, 93 (3), August, 748–6330. Maarten van Rooij, Annamaria Lusardi and Rob Alessie (2011), ‘Financial Literacy and Stock Market Participation’, Journal of Financial Economics, 101 (2), August, 449–7231. Mark Grinblatt, Matti Keloharju and Juhani Linnainmaa (2011), ‘IQ and Stock Market Participation’, Journal of Finance, LXVI (6), December, 2121–6432. Lauren E. Willis (2011), ‘The Financial Education Fallacy’, American Economic Review: Papers and Proceedings, 101 (3), May, 429–34PART VSOCIAL INTERACTIONS 33. Esther Duflo and Emmanuel Saez (2002), ‘Participation and Investment Decisions in a Retirement Plan: The Influence of Colleagues’ Choices’, Journal of Public Economics, 85 (1), July, 121–4834. Harrison Hong, Jeffrey D. Kubik and Jeremy C. Stein (2004), ‘Social Interaction and Stock-Market Participation’, Journal of Finance, LIX (1), February, 137–6335. Markku Kaustia and Samuli Knüpfer (2012), ‘Peer Performance and Stock Market Entry’, Journal of Financial Economics, 104 (2), May, 321–3836. Dimitris Georgarakos, Michael Haliassos and Giacomo Pasini (2014), ‘Household Debt and Social Interactions’, Review of Financial Studies, 27 (5), May, 1404–33Volume IIIAn introduction to all three volumes by the editor appears in Volume I PART IFINANCIAL ADVICE 1. Roman Inderst and Marco Ottaviani (2009), ‘Misselling through Agents’, American Economic Review, 99 (3), June, 883–9082. Daniel Bergstresser, John M.R. Chalmers and Peter Tufano (2009), ‘Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry’, Review of Financial Studies, 22 (10), October, 4129–563. John Y. Campbell, Howell E. Jackson, Brigitte C. Madrian and Peter Tufano (2011), ‘Consumer Financial Protection’, Journal of Economic Perspectives, 25 (1), Winter, 91–1144. Andreas Hackethal, Michael Haliassos and Tullio Jappelli (2012), ‘Financial Advisors: A Case of Babysitters?’, Journal of Banking & Finance, 36 (2), February, 509–245. Roman Inderst and Marco Ottaviani (2012), ‘Financial Advice’, Journal of Economic Literature, 50 (2), June, 494–5126. Utpal Bhattacharya, Andreas Hackethal, Simon Kaesler, Benjamin Loos and Steffen Meyer (2012), ‘Is Unbiased Financial Advice to Retail Investors Sufficient? Answers from a Large Field Study’, Review of Financial Studies, 25 (4), April, 975–1032PART IICULTURAL AND HEREDITARY INFLUENCES ON FINANCIAL BEHAVIOR 7. Luigi Guiso, Paola Sapienza and Luigi Zingales (2006), ‘Does Culture Affect Economic Outcomes?’, Journal of Economic Perspectives, 20 (2), Spring, 23–488. Luigi Guiso, Paola Sapienza and Luigi Zingales (2008), ‘Trusting the Stock Market’, Journal of Finance, LXIII (6), December, 2557–6009. Una Okonkwo Osili and Anna L. Paulson (2008), ‘Institutions and Financial Development: Evidence from International Migrants in the United States’, Review of Economics and Statistics, 90 (3), August, 498–51710. Amir Barnea, Henrik Cronqvist and Stephan Siegel (2010), ‘Nature or Nurture: What Determines Investor Behavior?’, Journal of Financial Economics, 98 (3), December, 583–60411. Laurent E. Calvet and Paolo Sodini (2014), ‘Twin Picks: Disentangling the Determinants of Risk-Taking in Household Portfolios’, Journal of Finance, LXIX (2), April, 867–906PART IIIHOUSING, PORTFOLIO CHOICE AND DEFAULT 12. Sanford J. Grossman and Guy Laroque (1990), ‘Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods’, Econometrica, 58 (1), January, 25–5113. Michael C. Fratantoni (2001), ‘Homeownership, Committed Expenditure Risk, and the Stockholding Puzzle’, Oxford Economic Papers, 53 (2), April, 241–5914. Marjorie Flavin and Takashi Yamashita (2002), ‘Owner-Occupied Housing and the Composition of the Household Portfolio’, American Economic Review, 92 (1), March, 345–6215. Maria Concetta Chiuri and Tullio Jappelli (2003), ‘Financial Market Imperfections and Home Ownership: A Comparative Study’, European Economic Review, 47 (5), October, 857–7516. John Y. Campbell and João F. Cocco (2003), ‘Household Risk Management and Optimal Mortgage Choice’, Quarterly Journal of Economics, 118 (4), November, 1449–9417. João F. Cocco (2004), ‘Portfolio Choice in the Presence of Housing’, Review of Financial Studies, 18 (2), Summer, 535–6718. Rui Yao and Harold H. Zhang (2005), ‘Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints’, Review of Financial Studies, 18 (1), Spring, 197–23919. Todd Sinai and Nicholas S. Souleles (2005), ‘Owner-Occupied Housing as a Hedge Against Rent Risk’, Quarterly Journal of Economics, 120 (2), May, 763–8920. Raj Chetty and Adam Szeidl (2007), ‘Consumption Commitments and Risk Preferences’, Quarterly Journal of Economics, 122 (2), May, 831–7721. Atif Mian and Amir Sufi (2009), ‘The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis’, Quarterly Journal of Economics, 124 (4), November, 1449–9622. Ronel Elul, Nicholas S. Souleles, Souphala Chomsisengphet, Dennis Glennon and Robert Hunt (2010), ‘What Triggers Mortgage Defaults’, American Economic Review: Papers and Proceedings, 100 (2), May, 490–9423. Luigi Guiso, Paola Sapienza and Luigi Zingales (2013), ‘The Determinants of Attitudes Toward Strategic Default on Mortgages’, Journal of Finance, LXVIII (4), August, 1473–51524. Atif Mian and Amir Sufi (2011), ‘House Prices, Home Equity-Based Borrowing and the US Household Leverage Crisis’, American Economic Review, 101 (5), August, 2132–56PART IVCREDIT CARD BEHAVIOR 25. David B. Gross and Nicholas S. Souleles (2002), ‘Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data’, Quarterly Journal of Economics, 117 (1), February, 149–8526. David B. Gross and Nicholas S. Souleles (2002), ‘An Empirical Analysis of Personal Bankruptcy and Delinquency’, Review of Financial Studies, 15 (1), Spring, 319–4727. Scott Fay, Erik Hurst and Michelle J. White (2002), ‘The Household Bankruptcy Decision’, American Economic Review, 92 (3), June, 706–1828. David Laibson, Andrea Repetto and Jeremy Tobacman (2001), ‘A Debt Puzzle’, Adapted from NBER Working Paper No. 7879, 1–39, tables and figures29. Carol C. Bertaut, Michael Haliassos and Michael Reiter (2008), ‘Credit Card Debt Puzzles and Debt Revolvers for Self-Control’, Review of Finance, 13 (4), October, 657–9230. Stephan Meier and Charles Sprenger (2010), ‘Present-Biased Preferences and Credit Card Borrowing’, American Economic Journal: Applied Economics, 2 (1), January, 193–21031. Irina A. Telyukova (2013), ‘Household Need for Liquidity and the Credit Card Debt Puzzle’, Review of Economic Studies, 80 (3), July, 1148–77Index

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